Operational Insight: 6 Contract Terms and Clauses You Should Include In Your Cleaning Contract
A commercial cleaning contract is a legally binding document.
That means you’re cleaning business is liable if you fail to meet the terms outlined in the contract.
Breach of contract can end in termination, or worse, financial damages if the breach is serious.
Either way, you need to consider every cleaning contract you sign.
With smaller contracts (< £50,000 p/a) clients will generally sign your standard terms.
But, larger contracts are service level agreement. It’s important that you can meet all the terms in the agreement.
In today’s email:
The Parties
Start and End Date
Termination
Cost of Supplies
Payment Terms
Defect Deduction
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THE BIG IDEA
There are important terms and clauses you need to be aware of in any cleaning contract
The Parties
The contract will be between two businesses and both parties are added to the contract.
The full business name, registered office and registration number should be added to the head of the contract.
Start and End Date
Every contract needs a start and end date which specifies the term of the contract.
Smaller contracts tend to run for 12 months. Bigger contracts can have a 3, 5 or 10 year term.
One or more options to extend or renew the contract is also common.
If there is an option to extend or renew the contract, there will be a notice requirement that one or both parties need to follow.
The notice process specifies the parties intent to renew the contract or exercise an option to extend for an extra period of time.
It’s not uncommon for clients to indefinitely renew agreements on an annual basis.
The longer the renewal period the better for your business.
Unless there are major problems, clients don’t want to change suppliers or go out for bids until the end of the contract (or renewal) term.
Termination
All contracts will have a termination clause.
This will often be in favour of the client.
You want to make sure that you also have the option to terminate, which is possible in smaller contracts.
With larger contracts this might be more difficult. Clients are reluctant to give you a way out of the contract before the term has ended. It can cause extra cost, time and resources find a new supplier.
Smaller contracts tend to have a 30 day notice period.
Bigger contracts may have a 3, 6 or 12 month notice period. Factors like the size and complexity of the facility, staffing and the type of cleaning influence the notice period.
Cost of Supplies
The cost of supplies required to carry out the clean should be factored into your price for the clean.
With smaller contracts, there may instances where the client supplies the cleaning materials, but that’s rare.
Regardless, you should exclude the cost of paper products, soaps and other supplies from your price.
They fall outside the scope of the cleaning service you’re quoting for.
Instead, you should include them extra cost.
You can either have the client pay for the supplies you order, or add a % to each invoice as a handling fee.
This is a great way to make more margin with very little cost.
Payment Terms
Any agreement you sign should include payment terms that work well for you.
Ideally, you want to receive payment as soon as possible for work completed.
It took me 5 years to change our payment collection from arrears to advanced via direct debit.
This small change had a big impact on our cashflow. Instead of waiting 30-60 days for payment, we got paid before carrying out the work.
Easy to put in place with smaller contracts, but with bigger contracts you have to sign up to a set process.
That’s when including a late payment fee comes into play.
In the UK, there’s statutory interest on late commercial payments, which is 8% above the Bank of England base rate.
In the US, you might charge 10 - 20% of the overdue amount.
Either way, adding a late payment clause to the contract enables you to hold your client accountable if they don’t make payments on the due date.
The only caveat I will add is that it can be difficult enforcing late payment clauses. It ‘pays’ to be diligent with chasing payment and keeping a paper trail.
That way you have evidence of repeated late payments by clients which you can use when you need to enforce the clause or need to take legal action.
Defect Deduction
This clause allows clients to deduct costs from your monthly price. It's based on contract performance, quality control and inspection defects.
Make sure that the clause specifies that all inspections and quality standards get done at the end of a cleaning cycle, before use.
You also want to outline specific parameters for these inspections.
Clauses like this are common in bigger contracts. Service level agreement will outline benchmarks and KPIs you need to maintain throughout the contract.
It’s important to understand the terms of the contract that you are signing up to.
With smaller contracts, it’s best to write and provide a service contract and specifications to prospective clients.
It’s worth having a lawyer prepare a standard service contract for your so you don;’t miss anything.
On the flip side, when signing up to a service level agreement, have a lawyer review the terms so you understand their implications.
At the end of the day, contracts can be written to include any wording the parties wants.
There’s nothing wrong with asking for changes before the contract is signed.
Content to check out
This week’s episode of The Growth Lab podcast is a collection of tips on some of the challenges business owners need to overcome to grow their cleaning business. Listen here.
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Matt @ The Growth Lab
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